As part of the well intervention, reservoir data and well conditions are required to evaluate options for further decisions. Data Acquisition (well logging, case-hole logging) is a process of acquiring subsurface data. Called Well Logs, they could be geological, whereby samples of rocks are obtained or geophysical logs, obtained using special tools lowered into a well. Geophysical logs, also called wire-line logs, can be open-hole and cased-hole. While open-hole logging is used during actual well drilling operations, cased-hole logging is part of the well intervention domain.
Cased-hole logging obtains measurements through casing in the well and provides information about the well and reservoir, as well as an understanding of wells' behaviors and conditions. Called Production Log Testing (PLT), it generally covers monitoring of cement conditions, corrosion and formation fluid contacts. It also helps to determine the state of perforating, plugs and packers settings. Bottom-hole surveys provide bottom-hole pressure and temperatures readings, as and when required.
These are the typical tools used for cased-hole logging:
- Radioactive tracer logging
- Temperature logging
- Noise logging
- Gamma ray density logging
- Electromagnetic imaging
- Fluid capacitance logging
- Multifrequency measurements
- Memory production logging
Supply & Demand Dynamics
Demand for cased-hole logging is growing worldwide as a direct result of steady growth in well intervention activities, due to continuous efforts on maintaining and maximizing production within existing oilfields. In parallel to that, the number of ageing wells is increasing; hence more intervention needs to be conducted. According to Markets& Markets, the Well Intervention market worldwide is estimated to reach almost $14B by 2019, a yearly CAGR of 4%. Logging and bottom-hole survey is the largest segment in the Well Intervention area, followed by Tubing & Packer Repairs.
Due to continuous investment by NOCs in the GCC and increased technological challenges, in the long-run, the growth in the GCC shall witness a steady increase in demand for Well Intervention services. This region is considered to be the market with one of the highest penetration rates of well intervention services, both onshore and offshore. Yet, globally, the GCC market is one of the smallest, representing less than $200m per year on cased-hole logging and data acquisition segments.
Over the last few years, unconventional resources were the primary driver for the increasing demand for logging services. With almost 85% of the market being cased-hole logging and 15% open-hole logging, used primarily in exploration and appraisal wells, demand for cased-hole logging is poised to show a steady growth, due more brownfield projects geared towards enhancing the existing production.
Revenue wise, the market for cased-hole logging services is heavily (40-45%) dominated by North America, followed by Asia Pacific and Europe. GCC accounts for the smallest part of the global spend. However, this is set to change in the next few years due, to a higher number of old wells (conventional) that require intervention and monitoring.
Supply of case-hole logging services is composed of personnel and equipment. Around 50% of the equipment is proprietary to major service providers, with the rest being manufactured by companies who do not provide the services directly. Manufacturing facilities of logging tools are concentrated in key hubs in North America, North Sea and South East Asia. Due to high risk operation, integrity, reliability and accuracy of the tools used in case-hole logging services require a significant QA/QC process during manufacturing. In addition, manufactures of the case-hole logging tools are divided into higher and lower tiers due to different down-hole pressure and temperature conditions that affect the design of the tools and manufacturing methods.
Key services companies historically dominating this category are Schlumberger, GEBaker Hughes and Halliburton, with many more providers in lower-tier market where the temperature and pressure regimes are less severe and down-hole tools are widely available in the market. Lower-tier segment is highly competitive, since a significant amount of case-hole logging equipment is manufactured by 3rd parties, whereby free access to the equipment creates a highly competitive environment.
New Entrants is Medium
- Equipment manufactured by 3rd party
- Some proprietary tools
- Moderate CAPEX required
Suppleir Power is Medium
- Low / Mid tech equipment
- Many providers
- Need volumes
- No alternative for buyers
- Two-tier market
- A highly competitive environment
- Technology is available to many players
- Low switching costs
- Battle for marker share
Buyer Power is High
- Low tech equipment
- Many providers
- Spend is significant
- Low switching cost
- Does not exist
Cost & Price Analysis
As a result of increased activity, during the last several years, prices for cased-hole logging services have been showing conflicting trends on a global basis. There have been instances where the position of an existing dominant player(s) has been undermined, as a result of new entrants. Price trends in certain areas went negative year on year basis. In particular and for certain product segments, rates went down post 2008 oil price crash, but never recovered back. The 2015 indsutry downturn, put even more pressure on pricing with a double digit decline seen between 2015 and 2017.
This category is highly known for market share battles between various service providers and result in irrational bidding. Service providers may, especially bigger integrated companies, provide lower or breakeven pricing, in order to protect its market share or a particular client. Price skimming is very common in the category, in higher-tier in particular, whereby the service provider would charge a premium for a high technology tool that produces significant benefits for the clients.
Around 50% of cased-hole logging services is utilized in North America (NAM). Due to oil price cycles and reduced activities in NAM, the number of available equipment have grown and companies were in search for opportunities in other markets worldwide with GCC being one of them. Coupled with the price pressure on regional service providers, prices for cased-hole services in the GCC shall exhibit a somewhat neutral price trend, until the demand for equipment goes back. Overall, this category has very low price volatility for buyers.
The cost basis in this segment could be of two different natures, i.e. integrated companies with R&D capabilities and in-house assembly of the tools and service providers who source their tool fleet from 3rd party manufacturers. While the later is very dependent on the cost to purchase and maintain the tools, the cost structure of fully integrated companies is different and much more complex. There is a possibility that profit margins may exist in two instances, i.e. on a corporate level and on a business unit level, which result in double dipping. One of the possible ways for it to work is headquarters would loan to a business unit a tool at a fixed price and require a fixed pay-pack period. Business unit, in turn, will act as a separate business entity and mark up the tool and add all business unit specific costs.
Below are the cost elements that affect equipment acquisition cost and operating and their total impact.
- Research & development costs. Manufacturers spend significant amount of capital on R&D to be competitive and meet the challenges. Time to market becomes very critical for manufactures and pay-back period of R&D costs is usually heavily accelerated at the early product stages, i.e. when introduced and during the growth. Yet, for less complex and standard tools the R&D portion of the cost is minimal.
- Manufacturing & assembly costs. This category is known as a high precision and high quality segment and require a significant amount of highly qualified & trained personnel. Very lengthy manufacturing processes could be compared to those of space industry and require very detailed and comprehensive QA/QC processes to ensure tools reliability.
- Pricing strategy. 3rd party manufacturers of logging tools tend to provide better pricing to those service companies, who provide bigger revenue for them. Hence, smaller and niche service providers would incur a higher purchasing cost of the tools.
- Steel prices & materials. Steel (and its variations) is a major component of the logging tools. Non magnetic steel and corrosion resistant alloys make the tools more costly and longer to manufacture. Electronic components used in the tools are in demand primarily by non Oil & Gas industries.
- Maintenance costs. Reliability of logging tools is of utmost importance, hence maintenance plays a key role. Due to long exposure to high temperatures down-hole and other critical conditions, electronic components of logging tools are prone to failure. Following manufacturer QA/QC processes and inspection requirements is vital. Any repair of the tools must be done by OEM.
- Personnel costs. Since the segment is comprised of numerous service providers of various sizes, call- out nature of the services, employment patterns are mixed between permanent staff and temporary personnel pools. Over the last several years personnel costs have been going up. However, due to oil price slump and massive redundancies in the industry, manpower rates showed a downward trend, with bigger decline in non-critical roles
Value Chain Analysis
Logging and down-hole data aquistion tools manufacturers, in addition to major service providers.
- Scientific Drilling International
- IFG Corporation
- Probe Technology Services
- CBG Corporation
- Guardian Global Technologies
- Hotwell Ges.m.b.H.
- Xi'an Landau Petroleum Technology Co., Ltd
- GE / Baker Hughes
- TSL Technology's
Total Cost of Ownership
Procuring cased-hole logging services could be fairly complex and having the risk distributed correctly in the compensation mechanism is important. There are various ways the service companies would charge for the services. Knowing and understanding of the price structure can help optimize logging costs. Total cost of a job is the sum of five separate charges, with depth charge and run charge accounting for the majority of logging cost.
- Set-up charge / Rig up charge - aka mob/demob fee
- Standby charge, per day
- Depth charge: A fee to run the drum and lower a tool. It reflects the maximum depth that a tool reach
- Logging / Run charge - A per-foot charge for each tool run that covers the length of the actual interval logged
- Lost-in-hole / Damaged Beyond Repair
Assess the necessity of primary and back up equipment, as it costs more. With multiple rigs operating in the vicinity, back-up units may be shared amongst the rigs, if required.
Cost to change from one contractor to another, specifically when wire-line logging units are stationed and require installation work that may result in excessive standby costs for wire-line units and a drilling rig offshore.
Consider a minimum charge in the pricing mechanism to give more visibility to service providers
Effective category segregation methodology to clearly divide two segments, low-tier and high-tier, will allow to maintain the Leverage position, ensure access to the latest technology and expertise and enhanced local participation.
- To ensure more competitive environment and increased participation of domestic companies in the low-tier subcategory
- Develop long-term relationships with suppliers in the high-tier subcategory to manage technical and wells' challenges, and ensure drilling objectives are met in the most competitive manner
- Aggregate spend for both categories into a larger package, when leveraging on supplier expertise is a must, or integration with other services is critical
- Buy vs. rent might be an option, when a large utilization of lower-tier segment is expected. Equipment could be bought from major manufacturers with maintenance agreements with appointed local service provider to be in place.
- Developing suppliers in lower-tier segment might result in significant local value generation. In addition, over time, this will pave the way for transition of local suppliers to a high-tier segment
- Development of appointed local service providers for equipment maintenance when logging tools are bought by operators.